Econ Chapter 10 Homework

Choose the statement that is incorrect.
A). the quantity of real GDP supplied is the total quantity of goods and services, valued in constant base-year (2009) dollars, that firms plan to produce during a given period.
B). aggregate supply is the relationship between the quantity of real GDP supplied and the price level
C). over the business cycle, aggregate supply fluctuates around potential GDP
D). at any given time, the quantity of capital and the state of technology are fixed, but the quantity of labor is not fixed

C). over the business cycle, aggregate supply fluctuates around potential GDP

As we move up along the long-run aggregate supply curve, ____.
A). the prices of goods and services remain constant
B). the real wage rate remains constant
C). the money wage rate remains constant
D). the prices of goods and services increase and the money wage rate decreases

B). the real wage rate remains constant

As we move along the short-rib aggregate supply curve, ___.
A). the money wage rate, the prices of other resources, and the potential GDP remain constant
B). potential GDP increases
C). the real wage rate, the prices of other resources, and potential GDP remain constant
D). the money wage rate and the prices of other resources change by the same percentage

A). the money wage rate, the prices of other resources, and potential GDP reman constant

When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ___. Potential GDP ___.
A). the LAS curve and the SAS curve; decreases
B). the LAS curve; decreases
C). the LAS curve; does not change
D). the LAS curve and the SAS curve; does not change and the quantity of real GDP supplied increases

C). the LAS curve; does not change

when the price level rises but the money wage rage and other factor prices remain the same, there is a movement along ___. the quantity of real GDP supplied ___.
A). the SAS curve; increases
B). the SAS curve; decreases
C). the LAS curve; decreases
D). the LAS curve and the SAS curve; decreases

Choose the correct statement.
A). the higher the price level, the greater is the quantity of real GDP demanded
B). the quantity of real GDP demanded depends on the quantity of real GDP supplied
C). the quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports
D). the aggregate demand curve slopes downward because of the wealth effect and the money wage rate

C). the quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports

If an economy is at full-employment equilibrium and a decrease in consumption expenditure occurs, the new short-run equilibrium is ___ and ___ gap emerges.
A). an above full-employment equilibrium; an inflationary
B). a below full-employment equilibrium; an inflationary
C). an above full-employment equilibrium; a recessionary
D). a below full-employment equilibrium; a recessionary

D). a below full-employment equilibrium; a recessionary

Changes in consumption spending play a large role in the business cycle because ___ accounts for approximately ____ percent of GDP.
A). consumption expenditure; 90
B). consumption expenditure; 70
C). U.S. consumer purchases of net exports; 70
D). U.S. consumer purchases of net exports; 50

Stagflation ___.
A). has not ben experienced in the United States since the Great Depression
B). is another name for an inflationary gap
C). is a combination of recession and inflation
D). occurs when aggregate demand decreases by more than short-run aggregate supply increases

C). is a combination of recession and inflation

According to the Shoppers Stimulate Discount Stores Article, the ___ macroeconomic school of thought justifies the policy discussed in this news clip.
A). monetarist
B). Keynesian
C). new classical
D). classical

B). Keynesian

Which of the following statements about the monetarist view of the macroeconomy is incorrect?
A). the money wage rate is sticky
B). taxes should be kept low to avoid disincentive effects that decrease potential GDP
C). all recessions result from inappropriate monetary policy
D). left alone, the economy rarely operates at full employment

D). left alone, the economy rarely operates at full employment

A ___ macroeconomist believes that the economy is self-regulating and always at full employment.
A ___ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
A). Keynesian; new Keynesian
B). classical; monetarist
C). classical; Keynesian
D). new classical; monetarist

C). classical; Keynesian

New classical theorists believe that

the uneven pace of technological change is the most significant cause of business cycle fluctuations

the wealth effect refers to the fact that

when the price level falls, the real value of household wealth rises, and so will consumption

how can government policies shift the aggregate demand curve to the right?

by increasing government purchases

a higher exchange rate will result in

a decrease in net exports and a decrease in aggregate demand

in she short run, an unexpected decrease in oil prices will

decrease the price level but increase real GDP

If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?

the eventual agreement by workers to accept lower wages

monetarism is a school of economic thought that favors

a monetary growth rule

the classical view assumes

money wage rates adjust quickly

according to Keynesian theory, fiscal policymakers can combat the impact of recessions by

increasing government spending

if the economy moves into a recession, monetarists argue that the Fed should

keep the money supply growing at a constant rate

___ advocates active government intervention via fiscal policy when the economy is in recession

Keynesian theory

the 1974-1975 recession was a result of a

leftward shift of the short-run aggregate supply curve

which of these factors will cause the long-run aggregate supply curve to shirt to the right?

the accumulation of more machinery and equipment

the economy is in long-run equilibrium when the short-run aggregate supply and aggregate demand curve intersect at a point

on the long-run aggregate supply curve

a monetary growth rule that might be supported by a monetarist would be a plan

for the Federal Reserve to increase the quantity of money at a fixed rate and not respond to economic fluctuations

Stagflation is a

combination of inflation and recession

In the long-run, the level of output is

the full-employment level of output

which of these shifts aggregate demand curve to the right

lower interest rates

the aggregate demand and aggregate supply model explains

short-run fluctuations in real GDP and the price level

which of these policies affects the economy through intended changes in the quantity of money and interest rates?

monetary policy

which of these factors will shift the short-run aggregate supply to the left?

a decrease in the size of the labor force

which of these factors will cause the aggregate demand curve to shift?

a change in the expectations of households and firms

the long-run aggregate supply curve

shifts to the right as technological change occurs

an unexpected change in the price of oil would cause a shift of the ___ curve

short-run aggregate supply

the aggregate demand curve shows the relationship between

the price level and the quantity of real GDP demanded

keynes maintained that the economy could remain long-term at levels of output below the full-employment level of output due to

sticky wages

when aggregate demand increases, unemployment will usually ___ and inflation will ____.

fall, rise

if the price level and the money wage are rise by the same percentage, the quantity of real GDP supplied ___ and there is a movement up along the ___ aggregate supply curve

does not change; long-run

if the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ___ and there is a movement up along the ___ aggregate supply curve

increases; short-run

a rise in the money wage rate with no change in potential GDP creates ___

a leftward shift of the SAS curve and no change in the LAS curve

the increase in labor productivity ___ LRAS and SAS

increases

correct statements

the overall effect of the increase in labor productivity and the rise in the wage rates is an increase in potential GDP
rising wage rates decrease short-run aggregate supply (SAS) and have no effect on long-run aggregate supply
the increase in labor productivity increases long-run aggregate supply (LRAS)

AD is the relationship between the quantity of ___ demanded and the ___ when all other influences on expenditure plans remain the same

real GDP; price level

example of fiscal policy

the US government as proposed a hike in the corporate tax rate

fiscal policy includes

changing taxes, transfer payments, and government expenditure on goods and services
the fact that the US government has proposed a hike in the corporate tax rate implies a change in taxes. so it illustrates fiscal policy

example of monetary policy

the fed has raised the federal funds rate by .3 percent

monetary policy includes

changing the quantity of money and the interest rate
the fact that the fed has raised the federal funds rate by .3 percent, impplies a change in the interest rate. so it illustrates monetary policy

economic growth results when there are increases in

the full-employment quantity of labor

inflation results when

the increase in aggregate demand exceeds the increase in potential gdp

starting from a full-employment equilibrium, an increase in AD ___ real GDP, and creates a __ gap

increases; inflationary

in the long run, the money wage rate ___, short-run aggregate supply (SAS) ___, and the economy returns to a full-employent equilibrium

a classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events

Events:
growth in the world economy slows
the world price of oil rises
US labor productivity declines

Obama most likely follows the ___ school of thought and John McCain most likely follows the ___ school of thought

Keynesian or new Keynesian; classical or new classical

Paul Krugman most likely follows the ___ school of thought and Ben Bernanke most likely follows the ___ school of thought

Keynesian or new Keynesian; Keynesian or new Keynesian

a classical macroeconomist believes that the economy is self-regulating and always

at full employment

a new classical view is that business cycle fluctuations are the ___ responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of ___

efficient; technological change

a Keynesian macroeconomist believes that left alone, the economy would ___ operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and monetary policy is required

rarely

a modern version of the Keynesian view, known as new Keynesian view, holds not only that the money wage rate is ____ but also that prices of goods and services are ____

sticky; sticky

a monetarist is a macroeconomist who believes that the economy is self-regulating and that it will normally operate ___, provided that monetary policy is not erratic and that the pace of ___ is kept steady

at full employment; money growth

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